Molson Coors Brewing Company Quarterly Valuation – August 2014 $TAP
Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Molson Coors Brewing Co. (TAP) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Molson Coors Brewing Company (MCBC) is a holding company. The Company operates in five business segments: Canada, the U.S., Central Europe, the U.K., and Molson Coors International (MCI). The Company is a brewer and has a portfolio of owned and partner brands, including signature brands Coors Light, Molson Canadian, Carling and Staropramen, as well as craft and specialty beers such as Blue Moon, Creemore Springs, Cobra and Doom Bar. Its other subsidiaries include: Molson Coors Canada (MCC), operating in Canada; MillerCoors LLC (MillerCoors) operating in the United States (U.S.); Molson Coors Brewing Company (UK) Limited (MCBC-UK, operating in the United Kingdom (U.K.) and the Republic of Ireland; Molson Coors International (MCI) operating in various other countries; and its other non-operating subsidiaries. In June 15, 2012, the Company acquired StarBev. In January 2013, it acquired Ireland’s Franciscan Well brewery.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years -Â PASS
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
- Moderate PEmg ratio – PEmg is less than 20 -Â PASS
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 -Â FAIL
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend -Â PASS
- Earnings growth – EPSmg greater than 5 years ago -Â PASS
Valuation Summary
Key Data:
| Recent Price | $69.68 |
| MG Value | $39.60 |
| MG Opinion | Overvalued |
| Value Based on 3% Growth | $50.63 |
| Value Based on 0% Growth | $29.68 |
| Market Implied Growth Rate | 5.73% |
| Net Current Asset Value (NCAV) | -$27.63 |
| PEmg | 19.95 |
| Current Ratio | 0.85 |
| PB Ratio | 1.44 |
Balance Sheet – 6/30/2014
| Current Assets | $1,800,300,000 |
| Current Liabilities | $2,111,700,000 |
| Total Debt | $3,208,600,000 |
| Total Assets | $15,873,000,000 |
| Intangible Assets | $9,217,900,000 |
| Total Liabilities | $6,911,000,000 |
| Outstanding Shares | 185,000,000 |
Earnings Per Share
| 2014 (estimate) | $4.40 |
| 2013 | $3.07 |
| 2012 | $2.43 |
| 2011 | $3.62 |
| 2010 | $3.57 |
| 2009 | $3.92 |
| 2008 | $2.16 |
| 2007 | $2.84 |
| 2006 | $2.16 |
| 2005 | $1.44 |
| 2004 | $2.59 |
Earnings Per Share – ModernGraham
| 2014 (estimate) | $3.49 |
| 2013 | $3.13 |
| 2012 | $3.16 |
| 2011 | $3.42 |
| 2010 | $3.19 |
| 2009 | $2.83 |
Dividend  History
TAP Dividend data by YCharts
Conclusion:
Molson Coors is suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only initial concern with the company is the low current ratio, and while the Enterprising Investor is also concerned with the high level of debt relative to the current assets, the company qualifies for Enterprising Investors by default.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.19 in 2010 to only an estimated $3.49 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 5.73% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.
Be sure to check out the previous ModernGraham valuations of Molson Coors Brewing Company (TAP) for more perspective!
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Molson Coors (TAP)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Disclaimer:  The author did not hold a position in Molson Coors (TAP) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.
